Differences Between Inflation And Deflation

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Inflation is the increase in the overall level of prices in the economy and deflation is just the opposite. When there is inflation, it is resulted from too much money being circulated in the economy, causing prices to hike. On the other hand, deflation is caused by the decrease in the money supply, causing decreases in prices in the long run. Inflation is a trend that we have seen more recently in the United States, but there have also been times of deflation. Inflation and deflation affect multiple groups of the economy in different ways with each situation. Both of these situations have costs for consumers and producers. Being in one situation may cause incomes and employment to fall. There is a concern with both inflation and deflation because there are …show more content…

Those who are in debt end up in worst conditions because the demands of goods and services fall. This results in further depression of unemployment and a vortex of problems. The effects of deflation are much more unpredictable than inflation and often come as a surprise (text, Ch. 12-2h). On the surface level, deflation may be seen as a positive considering the decreased price levels, but it will result in a depression of problems for those in debt. Prices and income may fall but the amount of debt accumulated does not. If there is less money coming in, there is less to put towards what is owed. Deflation also has great effect on interest rates, taking account the low inflation rate shows that savings reduce if the nominal interest rate falls below zero and may provoke people to withdraw their savings (https://www.economist.com/blogs/economist-explains/2015/01/economist-explains-4). This makes it more difficult for a bank to stimulate the economy. Overall deflation may seem like something that is good for consumers because of lower price levels, but a closer look shows more harm than

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